Operations
Why Alternative Investment Operations Still Matter
Oct 20th, 2020 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Private Equity, Due Diligence Process, Newly Added, Risk management, Operations, Funds of Hedge Funds, Risk Management Strategies & Processes, Hedge Funds, Private Investments, Risk Management & OperationsBy Jason Scharfman Esq., CFE, CRISC, CAMS, CAIA Managing Partner, Corgentum Consulting As an operational due diligence (ODD) professional who performs ODD reviews of alternative investment managers on behalf of institutional investors and family offices, I have noticed a recent increase not only in the number of ODD reviews investorsRead More
Model Risk Management as Algo Trading Expands
May 10th, 2020 | Filed under: Algorithmic and high-frequency trading, Newly Added, Technology, Artificial Intelligence, The A.I. Industry, Machine Learning, Risk Management & Operations, Other Topics in A.I.The FICC Market Standards Board Ltd. (FMSB) is a London-based standards body for participants in the wholesale fixed income, currencies, and commodities (FICC) markets. It has been looking into the root causes of market misconduct, and pursuant to that research it recently published a report on the “themes and challenges”Read More
Using Alternative Data and Machine Learning in Alternative Asset Classes
Mar 30th, 2020 | Filed under: Algorithmic and high-frequency trading, Newly Added, Alternative data, Fintech, Risk management, Technology, Technology, Artificial Intelligence, CAIA Alternative Viewpoints, Machine Learning, Risk Management & Operations, Other Topics in A.I.Keith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy, CAIA Association Michael Oliver Weinberg and Peter Strikwerda work at the Dutch pension fund APG and serve as the head of hedge funds and alternative alpha and the global head of digital and innovation, respectively. CAIA Association and FDPRead More
In the room where it happens: An investigation of the potential of regulatory technology
Feb 26th, 2020 | Filed under: Newly Added, Technology, Artificial Intelligence, CAIA Alternative Viewpoints, Machine LearningKeith Black, PhD, CFA, CAIA, FDP, Managing Director of Content Strategy at CAIA Association Do you want to be in the room where it happens, when “The Smartest Guys in the Room”* are plotting their fraud and trying to prevent the demise of Enron? Look around at how lucky weRead More
Alternative Investments: Investing By Numbers
Nov 19th, 2019 | Filed under: Real Estate, Private Equity, Debt Types of Private Equity, Liquid and Fixed Income Real Estate, Newly Added, Fintech, Technology, Equity Types of Private Equity, Technology, The A.I. Industry, Real Estate Equity Investments, Hedge Funds, Private Investments, Real Assets, Risk Management & OperationsWhat’s in the future for alternative investments asset management? A new publication from Ernst & Young, London, contends that allocations to alternative investments and are “robust,” but that there is an important shift underway in favor of private equity and at the expense of hedge funds. In 2018, 40% ofRead More
Quantum Computing Will Mess Up all Expectations
Jul 11th, 2019 | Filed under: Algorithmic and high-frequency trading, Newly Added, Technology, Other Issues in Private Investments, Business News, The A.I. Industry, Private Investments, Risk Management & OperationsThere are reports that Google is preparing an announcement of “quantum supremacy” for later this year. If true, this is the biggest tech story since the transistor replaced vacuum tubes. It could be a disruptive development for just about every business with an IT department. Among much else, quantum supremacyRead More
Net Performance Reporting: Not Just Arithmetic
Jul 2nd, 2019 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Industry Size & Managers, Newly Added, Asset Managers, Operations, Partner accounting, The A.I. Industry, Fees, Hedge Funds, Structure of the Hedge Funds IndustryWhy can’t a fund manager simply subtract all fees and expenses from gross returns and present the arithmetical result to existing or potential investors? In a newly released paper, Donald Steinbrugge, the founder and CEO of Agecroft Partners, discusses how hedge funds calculate and present their net performance, and theRead More
A Fintech Revolution in Commercial Real Estate
May 9th, 2019 | Filed under: Real Estate, Newly Added, Technology, Operationally Intensive Real Assets, The A.I. Industry, Real Estate Equity InvestmentsCushman & Wakefield, Chicago, has released a discussion of blockchains in connection with real estate. The paper argues that the technology could “transform CRE transactions ranging from property listings, asset management, and the purchase and sale of properties.” It reminds us that blockchains are shared digital ledgers, both tamper-proof andRead More
Are Data Scientists the ‘New’ Rockstars?
Mar 21st, 2019 | Filed under: Newly Added, Alternative data, Technology, Operations, The A.I. Industry, Risk Management & OperationsDaniel Hill, a research analyst for the global equity team at William Blair, has written an insightful piece about the hot competition for data scientists underway in the alpha-seeking world today. Hill begins with the observation that there are lots of different buzzwords, hashtag-worthy words and phrases, at use inRead More
Assessing Risk Measurement for a Portfolio of Hedge Funds
Jan 27th, 2019 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Hedge Fund Strategies, Newly Added, Risk management, Technology, Risk Metrics and Measurement, The A.I. Industry, Risk Management Strategies & Processes, Hedge Funds, Structure of the Hedge Funds Industry, Risk Management & OperationsTwo scholars, Shubeur Rahman and Ranjan Bhaduri, have in a new paper taken a fresh look at a long-standing dilemma in the alternative investments industry. The question is: how should investors in hedge funds (especially in a multi-asset class, multi-strategy portfolio of hedge funds) measure the market risk inherent inRead More
Dark Pools and the Value of Information
Jan 16th, 2019 | Filed under: Newly Added, Operations, Event-Driven Hedge Funds, The A.I. Industry, Hedge Funds, Risk Management & OperationsActivist hedge funds can always be expected to trade both in lit exchanges and in dark pools, in the course of accumulating the equity stake that in turn will give them sway at an annual meeting or inside the boardroom. That is one inference from a model developed for theRead More
Risks & Rewards: The Future of Finance in Blockchain
Jan 6th, 2019 | Filed under: Newly Added, Risk management, Technology, Operations, Digital currencies, ETFs, Smart Beta, The A.I. Industry, Risk Management Strategies & Processes, Emerging Alternative Investments, Risk Management & Operations, Other Topics in A.I.A new article by Dave Dowsett and Heather Wied, both of Invesco, looks at blockchains and the way this new technology, precisely as it divorces itself from its original significance as a feature of the cryptocurrencies, is ready to transform finance. Dowsett and Wied contend that blockchain “offers the possibilityRead More
Leveraging and Enhancing Catastrophe Models
Dec 27th, 2018 | Filed under: Newly Added, Risk management, Operations, Risk Metrics and Measurement, The A.I. Industry, Risk Management Strategies & Processes, Emerging Alternative Investments, Risk Management & Operations, Other Topics in A.I.I write these words soon after reading the news from Sundra Strait, Indonesia. In recent days, the eruption and collapse of a volcano there has set off a tsunami that in turn has devastated the coastal regions of Banten and Lampung, also in Indonesia. Much time may have to passRead More
Steamrollers, Geniuses and Market Crashes
Nov 27th, 2018 | Filed under: Hedge Fund Operations and Risk Management, Newly Added, Risk management, Operations, The Global Economy & Currencies, The A.I. Industry, Risk Management Strategies & Processes, Hedge Funds, Relative Value Hedge Funds, Risk Management & Operations, Finance & EconomicsMcGraw Hill Education has brought out a new book by Bruce I. Jacobs, of Jacobs Levy Equity Management. The book, Too Smart for our Own Good, concerns “ingenious investment strategies, illusions of safety, and market crashes.” The thesis is that the financial crises of recent decades are the consequence ofRead More
Digitization of alternative investments: the rise of technology
Nov 20th, 2018 | Filed under: Private Equity, Newly Added, Venture capital, Technology, Operations, Other Issues in Private Investments, The A.I. Industry, Hedge Funds, Private Investments, Risk Management & OperationsKPMG, the auditing giant based in the Netherlands, has put out a white paper on the “digitization mandate” in the alternative investment space. It maintains that fund managers who “dawdle” in digitizing their business are acting foolishly, falling behind the expectations of their actual and potential investors. Consider fees. PreqinRead More
Neural Networks and EPS Prediction
Jul 12th, 2018 | Filed under: Newly Added, Technology, Risk Management Strategies & Processes, Risk Management & Operations, Other Topics in A.I.Yes, it sounds a bit like the phrase “jumbo shrimp,” in terms of sense, but a “long short-term memory neural network” is an important recent advance in artificial intelligence research. The term refers to a neural network devised with “forget gates” attached to cells of memory, originally in order toRead More
Blockchains: Hyped but Here to Stay
Jun 17th, 2018 | Filed under: Newly Added, Operations, Risk Management & OperationsIn a recent white paper, a trend analyst and a portfolio manager at Robeco put their heads together to look at the value of blockchains, or more formally of “distributed ledger technology,” in the financial world. Jeroen van Oerle (the analyst) and Patrick Iemmens (the manager) contend that there isRead More
Urgent vs. Important: Barriers to Digitization in Alternative Investing
Feb 15th, 2018 | Filed under: Alpha & Beta, Newly Added, Operations, Risk Management & Operations, Allocating to A.I.KPMG International and CREATE-Research have jointly prepared a report about the digitization imperative for alternative investment management. The report includes within that term both hedge funds and private equity. Early on, its authors list eight key digital innovations that are reconstructing the industry: Application programming interfaces; cognitive technology and machineRead More
PwC Charge: Asset Managers are Digital Tech ‘Laggards’
Nov 30th, 2017 | Filed under: Hedge Fund Industry Trends, Industry Size & Managers, Newly Added, Technology, The A.I. IndustryA new paper from PricewaterhouseCoopers on the coming transformations in the asset and wealth management industries says that firms in this market must adapt or die. And the adaptation the authors have in mind isn’t just the usual Darwinian metaphor – managers must “become business revolutionaries, even disruptors” in orderRead More
Federal Reserve on Counterparties to the next Lehman Brothers
Nov 2nd, 2017 | Filed under: Service Providers, Newly Added, Insolvency, Operations, Business News, Risk Management & OperationsThe Federal Reserve has issued a final rule relating to the qualified financial contracts (QFCs) of global systemically important U.S. banking institutions (GSIBs). Derivatives & Repo Report, a blog maintained by the international law firm Perkins Coie, has done a thorough write-up on the subject, to which the material belowRead More
DTCC: How to Think About Fintech
Oct 24th, 2017 | Filed under: Newly Added, Operations, Risk Management & OperationsThe Depository Trust and Clearing Corporation (DTCC), a provider of clearance, settlement, and a wide range of other services to the financial markets, has issued a new white paper on technological innovations and the disruptions fintech may generate. The report begins with a quotation from a speech given by LaelRead More
AIMA’s New Due Diligence Template
Oct 22nd, 2017 | Filed under: Service Providers, Due Diligence Process, Newly Added, Technology, Operations, Partner accounting, Risk Management & OperationsIt has been 20 years since the Alternative Investment Management Association published its first due diligence questionnaire, a template designed to standardize the diligence process by which investors decide if a particular management is right for them. Now it has published a new questionnaire/template, covering a broader range of entities/strategies.Read More
Barnes on Swaps Transparency under MiFID II
Sep 19th, 2017 | Filed under: Investing in Commodities, Newly Added, Operations, Commodities, Structured Products, Risk Management & OperationsA recent blog in the TABB Forum, by Chris Barnes of Clarus Financial Technology, looks at recent developments in the realm of MiFID, and looks forward. The UK’s Financial Conduct Authority in August of this year authorized certain Approved Publication Arrangements (APAs) for reporting under MiFID II. The authorization ofRead More
The Federal Reserve on Distributed Ledger Technology (that is, on Blockchains)
Jan 5th, 2017 | Filed under: Newly Added, Operations, The Global Economy & Currencies, Risk Management & Operations, Finance & EconomicsA large team of officers and staff affiliated with the Federal Reserve (eight with the Board in DC, five with the FR Bank of New York, one with the FRB of Chicago) have collaborated on a new paper on distributed ledger technology in payments, clearing, and settlement. Of necessity, givenRead More
Commissioner Piwower and Alpha Seekers
Nov 15th, 2016 | Filed under: Newly Added, Operations, Event-Driven Hedge Funds, Hedge Funds, Commodities, Risk Management & OperationsWith a new administration in the making, thoughts in the world of asset management naturally turn to the issue of appointments to the Securities Exchange Commission and the Commodity Futures Trading Commission. Who is likely to get what position and what difference might it make? Recent practice has been thatRead More
Academics: No, Navinder Sarao Did Not Cause the Flash Crash
Oct 25th, 2016 | Filed under: Hedge Fund Operations and Risk Management, Algorithmic and high-frequency trading, Newly Added, Risk management, Technology, Operations, Business News, Personalities in AI, Risk Management & Operations, Finance & EconomicsMid-October news reports tell us that Navinder Sarao has lost his effort to avoid extradition from Britain to the United States. So he will face charges in the U.S. in connection with the “flash crash” of May 2010, the incident in which the DJIA fell 998.5 points in less thanRead More
Escape to the Internet? Or Build Better Communities?
May 8th, 2016 | Filed under: Currencies, Newly Added, Technology, Operations, The Global Economy & Currencies, Digital currencies, Risk Management & Operations, Other Topics in A.I.Dissatisfaction with the fiat money issued by or on signals from central bankers will not go away. Talk of “printing press” money seems quaint, as when people of my generation still refer to a keyboard as a “typewriter.” Central banks and their servants (and their servers) around the world engage,Read More
Andrew Lo: Progress is the Platform for Ever-Changing Risk
Feb 28th, 2016 | Filed under: Newly Added, Risk management, Partner accounting, Risk Management Strategies & Processes, Risk Management & OperationsAndrew Lo, of the Massachusetts Institute of Technology, recently wrote a stimulating discussion of two seemingly contrary “laws”: Moore’s and Murphy’s. Read More
AIMA’s Guide to the Bamboo Bridge of Operations
Feb 15th, 2016 | Filed under: Due Diligence Process, Newly Added, Regulatory Environment, Operations, The A.I. Industry, Risk Management Strategies & Processes, Risk Management & OperationsHow sturdy can a bamboo bridge be? The front page of a new Guide from The Alternative Investment Management Association consists of a photo of a bamboo bridge, apparently on a beach, as seen from below. That is, this is the view of someone on whom the bridge would fall,Read More
“We Aren’t Obsolete,” Says DTCC White Paper
Feb 4th, 2016 | Filed under: Service Providers, Newly Added, Technology, Risk Management & OperationsThe Depository Trust and Clearing Corporation has issued a new white paper on block chains and their significance in the context of the post-trade landscape. Block chains, also known as distributed ledgers, are a hot new technology, made so in large part by the cryptocurrency Bitcoin and by the publicityRead More
After Seven Years: Philosophical Implications of the Madoff Fraud
Dec 30th, 2015 | Filed under: Derivatives, Due Diligence Process, Newly Added, Operations, Equity-linked Structured Products, Personalities in AI, Risk Management & OperationsIt has been seven years and a few days more now since Bernard Madoff acknowledged to authorities that “there is no innocent explanation” for the story they had just heard from his sons. It has been 15 and a half years since Harry Markopoulos ran the numbers regarding Madoff’s performanceRead More
The Elusiveness of the Natural Block Trade
Nov 1st, 2015 | Filed under: Technology, Operations, Business NewsTrading on natural blocks is a very desirable goal. So why aren't more traders doing it? How hard are they trying? Some questions from a TABB paper, and from an intriguing commenter at TabbForum. Read More
Study Shows Divergence in Fund Expense Disclosure
Oct 29th, 2015 | Filed under: OperationsThe analytic company Convergence concludes from its research -- a study of 2,600 ADVs -- that there is a lot of variance in the “depth, breadth, and quality of expense disclosure practices” across fund types and strategies. Read More
Enterprise Software Marketers Confirm: Seven is a Sacred Number
Jul 21st, 2015 | Filed under: Regulatory, TechnologyGod rested on the seventh day of the week of creation. Ever since, the number seven has stood for the completion of an epoch, or of a perfect set. Thus, a German enterprise concern has now listed the "seven pillars" for improved market surveillance through software.Read More
Climate Finance: A Priority for the MDBs
Jul 15th, 2015 | Filed under: Social investing, Socially responsible investing, Technology, Climate changeA new report from the World Bank says that six multilateral development banks delivered more than $28 billion in financing in 2014 that "address climate change" in one of two ways, mitigation or adaptation. Read More
Aleynikov Again: State Jury Conviction Set Aside
Jul 8th, 2015 | Filed under: Algorithmic and high-frequency trading, Technology, Legislation/Court rulingsThe judge's ruling setting aside the jury's guilty verdict is, of course, grand news for Aleynikov. It is also the curtain on a sometimes farcical spectacle. But let us not forget that there are issues of principle involved. Read More
PwC Looks Ahead to 2020: Offers a Roadmap for Alternative Investment Managers
Jul 5th, 2015 | Filed under: Hedge Fund Industry Trends, Hedge Fund Strategies, Infrastructure, Technology, Emerging marketsPwC offers a glimpse of a 'day in the life' of a typical compliance analyst in 2015 and again in 2020. As these authors tell it, the day is filled with data, darkness, and drudgery at present, but it will be airy, alliterative, and analytical in another five years. Read More
Spoofing: The ‘It’ Enforcement Action
Jun 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Derivatives, Regulatory, TechnologySpoofing is probably about as ubiquitous as texting-while-driving. And it is possible to make an example of a spoofer caught red-handed. But it isn't clear what purpose that will serve. The real problem is that a broken market contains a broken set of incentives. Read More
Who Will Meet Yahoo at the Altar?
Jun 16th, 2015 | Filed under: Real Estate, Alpha Strategies, Technology, Intellectual PropertyThere was some excitement as recently as January 2015 over renewed talk of a Yahoo/AOL deal, but after the bloom finally came off that rose, YHOO settled into a trading range has been roughly from $42 to $46. Faille guesses that there is an opportunity here on the upside of that range, because another suitor is bound to appear.Read More
Java IP War: The Obama Administration Picks the Wrong Side
Jun 8th, 2015 | Filed under: Technology, Intellectual PropertyThe Solicitor General, speaking for the United States, has filed the expected amicus brief in the Google/Oracle showdown. The SG's position is that the Supreme Court should refuse to hear the case so that the lower courts can get back to using what the brief calls the "flexible fair use doctrine" to do justice. Read More
Copper Prices: Why the Downslope?
May 26th, 2015 | Filed under: Commodities, Hard metals, Risk management, TechnologyHow long will it take before the world again sees copper at around $10,000 a ton, the going price it touched (though briefly) in early 2011? Perhaps several more years and another full business cycle. There may be a lot of down before an upturn gets us there. Read More
What’s in a Copyright? Java API Case Before U.S. Supreme Court
May 25th, 2015 | Filed under: Institutional Investing, Technology, Intellectual PropertyHigh-stakes litigation between Google and Oracle approaches its resolution at the Supreme Court. For seekers of alpha, this isn't just about what investments to make, but about the way one goes about making them, the very mechanics of trading. Read More
Northern Trust on Hedge Funds, Big Data and Transparency
May 20th, 2015 | Filed under: Institutional Investing, Alpha Hunters, TechnologyThe integration of data isn't fully on the hedge fund industry radar yet. Yet it may be critical to rebuilding manager-investor relations via whiz-bang 21st century technology. Read More
GOOG to Test Buy-on-Antitrust-Charge Theory
Apr 26th, 2015 | Filed under: Technology, Legislation/Court rulings, Alpha SeekersLook for the EC sometime in the near future to bring a complaint about the contracts into which Google has entered with manufacturers that require them to construct the handsets in a way that favors Google’s famous search engine [over, for example, Microsoft’s Bing.] But consider that even this preliminary skirmish over comparison shopping might be a bullish sign for GOOG.Read More
Tax & Election Seasons Create Alternative Altercations in the US
Apr 20th, 2015 | Filed under: Real Estate, Venture capital, Legislation/Court rulings, Partner accountingAs a general rule, politicians [mostly] on the Democratic side benefit by raising the issue of the taxation of carried interest during campaigns and then quietly letting it die, as their donors expect, when the legislature is actually working on tax bills. It's a way of signaling who is a "populist" and who isn't. Read More
When I Learned Truth About RadioShack
Apr 13th, 2015 | Filed under: Hedge Fund Strategies, Insolvency, TechnologyIT guys have been denigrating RadioShack, from their own perch of superiority, for a long time. The trouble is, while those IT guys were the future, RadioShack's customer base was fading into the past. Read More
Reflections on the MS Internet Explorer, R.I.P.
Apr 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Technology, Legislation/Court rulingsThe U.S. Department of Justice typically brings high-profile antitrust actions against 'monopolists' by piling its legal theories on top of dubious micro-economics. A recent announcement by Microsoft sends Faille down memory lane, to two 1990s era actions by the D of J against MS in the days when Bill Gates was still a great media ogre. Read More
A Taylor-Swift Lawsuit: ‘I’ve Got a Blank Space Baby.’
Mar 26th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Derivatives, TechnologyThis is the story of one high-frequency trading firm suing one or more others and giving detailed credence to everything that has been said over the last year or so by those who bemoan the rise of HFT firms. Read More
The Next Big Thing: A Robotic ‘Nexus’ of Contracts
Mar 2nd, 2015 | Filed under: Currencies, Regulatory, Technology, Digital currenciesIn some fairly routine middle-critter corporate roles, there may no longer be much need for human managerial involvement. Enter the self-running business entity: another big step toward the obsolescence of human beings some of whom, nonetheless, will get wealthy in the process. Read More
Debates Over Bayesianism Take Cartoon Form
Feb 10th, 2015 | Filed under: CAPM / Alpha Theory, Risk management, TechnologyRegular readers of AllAboutAlpha know that Bayesianism, a movement with the world of probability and statistics, has a good deal to do with contemporary pricing models and portfolio theory. It also has foes in that world, the frequentists, and a 2012 cartoon, recently raised to salience again by a Facebook post, has given those frequentists reason to gripe about Bayesian smugness. Read More